When do Investors Invest: The Four Stages of Fundraising

Raising investments is as much dependent on the stage your business is in as it is on other pertinent factors. The development stage is an important consideration because it helps investors ascertain exactly the degree of information you can provide. As an entrepreneur, you can maximise your funding chances by doing your research and identifying investors with an affinity for businesses at your stage. Let’s understand the investor profiles and fundraising techniques at each stage.

Seed Stage

This is when you have the ‘seed’ of an idea that can be grown into a business. This is usually a pre-revenue, pre-production stage where an entrepreneur has a well-researched business idea. At this stage, raising capital from your network, through crowdfunding, bootstrapping etc. make for good sources of funding. But if you are really confident of your idea and have a business plan in place, you could look for angel investors. It is important to note that you don’t always have to go out looking for an investor. Sometimes, unexpected ‘angels’ could be sitting right in your networks.

In the seed stage, it is highly unlikely your company will have equity to sell. Thus, it makes sense to go the loan or convertible debt route.

Early Stage

At this stage, the seed grows to a sapling, which means your company has taken off but has only just started. Early stage companies usually have their product or service provided to at least a small sample of customers. They also have at least nominal revenue generation. Now, this is a good place to start raising funds from traditional investors such as angels and VCs. Venture capitalists view companies at this stage with a special interest.

At the early stage, your fundraising options are wide open. You could go for equity fundraising, loans or convertible debt. The route you go for in the end will depend on your business’ unique needs and goals.

Expansion Stage

At this stage, your business grows in size and scale and begins to compete with other firms. It could mean that you have a growth plan in place but need capital to make that happen. Angel investors typically don’t invest at this stage but VCs are interested because of the growth prospects.

At the expansion stage, equity investments are your best bet, given that investors look out for sale or IPO opportunities in this case. Making a case for debt can prove to be difficult.

Late Stage

A company at this stage will be mature with strong fundamentals. Its market position will be secure but that doesn’t mean it surpasses the need for capital. VC interest almost fades at this stage but if you can make a strong case for yourself, you might see some funding coming your way. To win at this stage, find investors with a history of investing in late stage or in businesses at different stages of their life.

At the late stage, equity and loan are your options. Loans make for a good choice if you aren’t willing to give up equity. Equity is a great option if a sale or IPO is in the offing.

Whatever be the stage of your business, you can always find financial support if you are clear about what you want. In the end, it’s all about getting investments that make sense and align with your long-term goals.